Our first bootstrapped SaaS company has been acquired. Here is why we sold and how it all happened.
Baird Hall, Nick Fogle, & Rob Moore
Wavve was recently acquired by Calm Capital. We want to share with you why we sold, how we did it, and what we think other founders might be able to learn from our experience. But first, let’s talk about Wavve…
For those of you who aren’t familiar with Wavve, it’s a SaaS product we created in 2016 to make sharing audio clips on social media a breeze. .
But the conception and creation of Wavve wasn’t exactly a straight line. In fact, Wavve came from a failed startup. We’ve shared extensively about our journey starting Wavve and how it evolved out of a failed clubhouse style startup that we tried before. You can check out Baird’s Indie Hackers podcast interview, our failory interview, and Nick’s blog for more details on the journey.
As we spent more time growing and promoting Wavve, we realized there was a specific niche we could market to — podcasters. We pivoted our business to podcasting and, over the next several years, we scaled to over 1.6M ARR. It was a seemingly perfect situation — our bootstrapped SaaS had become a genuine success. But we began to realize that we needed to take some new action.
We built Wavve from the ground up and grew it into a successful business. As Peter Thiel might say, we took it from zero to one. But we started to realize that the skills needed to take it from zero to one compared to the skills needed to take it from a one to a ten are not the same. We love creating. But that’s not what Wavve needs right now. It needs seasoned business operators.
When you’re a founder and you’re running a growing, bootstrapped SaaS company, you can feel a lot of risk when your company equity is the majority of your net worth. A lot of bootstrapped founders don’t talk about this much. But as we started families and got older, we all wanted to take some risk off the table.
After examining the situation from different angles (and knowing that we weren’t interested in a sabbatical), we knew that selling the business was the most attractive path. But deciding that we were ready to sell led us to a whole new set of challenges.
Beginning the sales process for a SaaS business isn’t simple. First, we had to decide if we wanted to go broker, marketplace, or DIY. We also had to answer the big question: who did we want to buy Wavve?
We didn’t want a private equity-type company to buy Wavve and milk it in its current state for all that it’s worth. We wanted a buyer that was going to push Wavve forward into its next phase of growth. After some discussion and research, we started seeing a new type of buyer become more popular in the market: SaaS Portfolio Companies. These groups tend to be run by skilled operators who are looking to build a basket of healthy bootstrapped SaaS companies for the long term.
With that decided, we knew we wanted to source the deal from multiple potential buyers to ensure we were getting a fair market rate. We had a good feeling about the five potential buyers we interviewed, but out of all of them, Calm Capital stood out.
Calm Capital is an experienced SaaS portfolio company that’s based in the Carolinas. That proximity to our own location played a big part in our decision: we liked the idea of keeping it local. The culture fit was also obvious from the get-go. We knew that their values aligned with ours and that they genuinely wanted the best future for Wavve and for us.
To our surprise, we actually enjoyed the negotiation process. We spent a full month going back and forth on deal terms (mostly within Slack as asynchronous threads on specific details). While we were initially in favor of a lump sum purchase, we became more open to a hybrid cash / payout arrangement. The benefit of the latter structure is two fold. First, it gives us a piece of the upside as Wavve continues to grow. Second, there are tax benefits to extending capital gains over a longer period of time.
After a month of negotiations, we landed on a deal structure that gave us a life-changing payout with decent upside. Plus, we wound up paying only $7K in closing costs. Doing it ourselves was a lot of work, but we would have paid at least 30x that in broker fees
As creators and founders, one of our greatest goals is always to share our experiences in a way that might help other startups and founders as they navigate similar challenges. And that’s why we spent some time reflecting on what we would have done differently, now that we’ve had this experience, and how we would advise other SaaS founders who are considering selling.
First, one of our biggest pieces of advice: set up a data room as soon as possible and have a process for updating it. We didn’t, which means we inevitably ended up doing our due diligence multiple times. That was a lot of wasted time and work that we could have saved ourselves.
Second, figure out what the going rate is for SaaS valuations in your space. If you have a number in mind, lead with it early when you’re talking with prospective buyers. Due diligence takes time and you don't want sticker shock to scare someone away after all of that up-front effort.
Third, when it comes to potential buyers, start building relationships now. Setting clear expectations for a timeline and expected sales price early in the process is vital.
Fourth, when you start thinking about a target valuation, make sure you’re calculating income correctly. Buyers primarily use some flavor of Twelve Month Trailing (TTM) Profit. Depending on your company’s size, this could be Seller Discretionary Earnings (SDE) or EBITDA. When we first started talking to brokers in January of 2020, we were calculating SDE based on a current snapshot rather than TTM. If you’re growing fast with no sign of slowing down, this can make it challenging to get a fair valuation. If you’re in that situation, don’t hesitate to explain that you’d need a higher valuation multiple in your first call with a prospective buyer. It’s important to establish this before getting too far along. Once you receive that LOI and see all the zeroes, it will be harder to walk away.
If you want to learn more about how to value your SaaS company (if it’s under $5M or so ARR), check out our blog post How Churn Affects SaaS Company Valuations.
Fifth, hire an experienced transactional attorney if you’re selling without a broker. You can expect to pay between $5,000 and $10,000 in total fees for an asset sale. We also realized it can be helpful to have your counsel negotiate directly with the buyer’s lawyers. This reduces friction in negotiations and will move faster than if both parties are having to relay terms and objections from their respective counsel.
Finally, one of our biggest takeaways from this experience: be emotionally prepared. If you’re considering selling your startup, start to prepare yourself now. Making that mental shift from being a founder to being ready to sell your “baby” can be tough. And that extends beyond the initial process of deciding to sell. You could get all the way to choosing the buyer and entering negotiations, but that deal could still fall through. If it does fall through, you have to be okay with starting over again at square one. Otherwise, you risk taking a bad deal simply due to exhaustion.
We signed the LOI in January and closed on March 31st. While this is probably viewed as fast in the grand scheme of acquisitions, we are a little exhausted thanks to our naivety, which resulted in us doing the majority of the legwork ourselves.
There’s more to say. We plan to release more details about the sales process, what we learned along the way, and what we would do differently next time.
We will also be sharing articles here on the Churnkey blog, so use the email form below to subscribe. Lastly, these ideas and learnings are probably best discussed over longform discussions. If you want us to join your podcast, Clubhouse, Twitter Space, etc., just reach out via firstname.lastname@example.org.